I have played Arkham once or twice before, and loved the game so I am in the process of buying all the expansions.

I have also been reading the rules and FAQ.

On page 2 of the FAQ, it states that if an investigator is reduced to both Zero stamina and Zero sanity, the investigator is devoured. It also states - right below it - that if either the maximum stamina OR sanity are either reduced to zero, the investigator is devoured.

Im not too clear on this, can someone explain in better terms?

If you're reduced to 0 sanity and stamina at the same time you're devoured. Easy. But:

The other rule says if your maximum sanity or stamina reaches 0, you're devoured. Characters have a maximum sanity or stamina between 3 and 7. Note that the amount of sanity and stamina they have cannot go above their maximums. That is, if you're Harvey Walters at 7 sanity and you get an encounter that says you gain 1 sanity, you're still at 7 because it's your maximum.

It's not very easy or common, but certain effects will lower your maximum sanity or stamina (Cthulhu's ability for the game is that everyone's maximum sanity and stamina is reduced by 1: Harvey would max out at 6). If, by horrible luck, your maximum sanity or stamina manages to get damaged enough by penalties and effects to go to or below zero, the investigator is devoured.

Monterey Jack (3 sanity max) is playing against Cthulhu (-1 max) and has the Mythos Lore skill (-1 max). At some point he gains the Schitzophrenia card (-1 max), which reduces his maximum sanity to zero. He is immediately devoured, because his sanity can never go above his maximum, which is zero.